Simple Numbers, Straight Talk, Big Profits! Greg Crabtree, Beverly Herzog
This book teaches the fundamentals of owner compensation, profit targets, labour productivity, cash flow, and data reporting. Clear explanations and helpful illustrations throughout make it a must-read guide for small business owners looking to achieve higher profits.
Business Physics: The Four Forces of Cash Flow – #1. Paying Your Taxes
Before you spend money on anything, you have to set the taxes aside.
Don’t pay taxes until you absolutely have to without incurring a penalty.
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But until you pay the taxes, you have to set the money aside and get it out of your financial calculations so you know it isn’t yours to spend.
#2. Repaying Debt
You can’t build wealth until you get out of debt.
People who take a low- to no-debt approach can handle bad economic news because they live more stable and productive lives.
If you borrow money, you have to forgo any after-tax profits because you have to repay debt with those profits.
#3. Reach Your Core Capital Target
As a general rule of thumb, your core capital target is equal to two months of operating expenses in cash and nothing drawn on a line of credit.
Your core capital target forces you to pay for accounts receivable, inventory, and equipment with capital or term debt.
#4. Taking Profit Distributions
Capital formation is the sum of sweat equity, the money you invest, and after-tax profits that you keep in the business.
Consistent profits over time allow you to build equity by keeping those profits in the business, which then allows you to hit your core capital target, which then allows you to have excess cash that you can take out without damaging your business’s ability to grow.
Common Areas of Tax Fraud
- Paying yourself with distributions instead of a salary to avoid payroll taxes (S-Corps).
- Getting involved in offshore activities for the benefit of saving taxes only.
- Intentionally miscoding personal expenses as business expenses.
- Bartering by way of trading legitimate business expenses for something that is for your personal benefit.
- Not filing tax forms for subcontractors.
Opportunity is missed by most people because it is dressed in overalls and looks like work.
The Lip Service On Culture
Document your culture and how it ties into your profitability as a business.
The more you document it, the easier it is to live it and maintain it.
Send an email at the beginning of the week that highlights one segment of our culture document to let everyone know what our focus of the week is.
A company with a great culture and no profits is going to die.
The Salary To Give To Employees
- Companies that underpay employees tend to struggle in the long run due to high employee turnover.
- You also can’t assume that if you pay higher wages, you’ll get more productivity.
- Never give employees a cost-of-living adjustment.
- Years of experience often don’t count for much. The important thing is what people know and if they have the capacity to produce.
Evaluation Process is Key
- Your employees need to understand what is expected of them in terms of productivity.
- The best way to accomplish this is through the employee review process.
- You need to have a formal meeting with each employee at least twice a year.
- Focus on career planning and career path in employee reviews.
- Help employees understand that they are welcome to work at your company as long as you both get a fair exchange.
- It’s the responsibility of the CEO to provide employees with a vibrant environment, a fair wage, and a good culture.
Be Careful With Incentive Plans
- Throwing money at a problem doesn’t change the outcome.
- Most entrepreneurs look to incentive plans as a substitute for management and leadership.
- It’s usually more effective to use small amounts of money along the way to recognize outstanding achievements.